Last updated: 17 October 2026
Your cousin is excited. "I found a fund with NAV of just ₹12! The other one is ₹480. This one is so cheap, I'll get way more units." It sounds logical, like buying tomatoes at ₹12 a kilo instead of ₹48. But mutual funds don't work like the sabzi mandi. Let's clear up the two numbers you see on every fund page, NAV and expense ratio, so you know which one to care about.
What is NAV in a mutual fund?
NAV stands for Net Asset Value. It's the price of one unit of a mutual fund.
Think of a mutual fund as a big shared basket. Lots of people put money in, and the fund manager buys shares, bonds or both with it. To keep track of who owns how much, the basket is divided into units. The NAV tells you what one unit is worth today.
The maths is simple:
NAV = (Value of everything the fund owns − what it owes) ÷ Number of units
So if a fund's investments are worth ₹100 crore, it owes ₹1 crore in expenses, and there are 5 crore units, the NAV is ₹99 crore ÷ 5 crore = ₹19.80.
When is NAV calculated? (and the 3 pm cut-off)
Unlike a share, a mutual fund's price doesn't jump around every minute. Its NAV is worked out once a day, after the market closes, using the closing prices of everything it holds. For most schemes, funds must publish it on their own website and on the AMFI website by 11 pm every business day (fund of funds and some overseas-investing funds get until 10 am the next day).
This means when you invest or redeem, you don't know the exact NAV you'll get. For most funds (except liquid and overnight funds):
- If you're investing, your application and your money must reach the fund before the 3 pm cut-off to get that day's NAV. For redemptions, only the application time counts.
- If they arrive after 3 pm, you get the next business day's NAV.
So placing a purchase order at 2:55 pm from your app doesn't help if the money hasn't actually reached the fund by 3.
Liquid and overnight funds work a little differently: the purchase cut-off is 1:30 pm, and online redemptions from overnight funds are accepted until 7 pm.
Does a low NAV mean a cheaper fund?
No. This is the biggest myth about NAV.
A low NAV usually just means the fund is newer or has grown less so far. It doesn't mean it's a bargain. What matters is how much your money grows, in percentage.
Let's test the cousin's idea. You invest ₹1 lakh in each of two funds holding similar investments:
| Fund A | Fund B | |
|---|---|---|
| NAV when you invest | ₹50 | ₹500 |
| Units you get for ₹1 lakh | 2,000 | 200 |
| Both funds' investments grow 10% | NAV becomes ₹55 | NAV becomes ₹550 |
| Your money is now worth | 2,000 × ₹55 = ₹1,10,000 | 200 × ₹550 = ₹1,10,000 |
Fintelligent
Same growth, same result. More units don't mean more money. It's like one ₹500 pizza cut into 10 slices or 100 slices: smaller slices, same pizza.
So don't pick a fund because its NAV is low, and don't avoid one because its NAV is high. Compare what the fund invests in, how it has been run, and what it charges you.
What is an expense ratio?
The expense ratio is the yearly fee a mutual fund charges for managing your money. It's shown as a percentage of your investment, for example 0.75% a year.
It pays for things like the fund manager and research team, running costs, and (in regular plans) the commission paid to the distributor who sold you the fund.
You never get a bill for it. The fund takes a tiny slice every day from the fund's assets, and the NAV you see is already after that fee. That's why many people don't even notice it. But it's there, every single day.
Quick example: If you have ₹10 lakh in a fund with a 1% expense ratio, you pay about ₹10,000 a year, or roughly ₹27 a day, without ever seeing a deduction.
How much can a fund charge? SEBI's 2026 limits
SEBI puts a ceiling on it. Under the SEBI (Mutual Funds) Regulations, 2026, in force from 1 April 2026, the main fee is now called the Base Expense Ratio (BER). It covers the fund management fee, running costs and distribution commission. Brokerage, transaction costs and taxes like GST are charged separately on top, within their own limits.
Some of the maximum BER limits:
| Type of open-ended scheme | Maximum base expense ratio (per year) |
|---|---|
| Equity-oriented funds | 2.10% on the first ₹500 crore of assets, falling in steps as the fund grows, down to 0.95% on assets beyond about ₹50,000 crore |
| Other funds (like debt funds) | 1.85% on the first ₹500 crore, falling to 0.70% on the largest funds |
| Index funds and ETFs | 0.90% |
These are ceilings, not what every fund charges. Many funds, especially direct plans and index funds, charge much less. The total expense ratio (TER) you see on a fund's page adds the extra costs to the base fee, and AMFI publishes each scheme's TER on its website.
Direct plan vs regular plan
Every mutual fund comes in two versions:
- Regular plan: bought through a distributor or agent, who gets a commission out of the expense ratio.
- Direct plan: bought straight from the fund house or a direct-investing app, with no distributor commission. SEBI requires direct plans to have a lower expense ratio.
Same fund manager, same investments, different fee. (This applies to tax-saving ELSS funds too.) Over many years, that gap adds up. If you'd value someone's help picking and reviewing funds, a regular plan or a paid advisor can still make sense. Just know what you're paying for.
Why a "small" 1% matters so much
1% sounds like nothing. Let's see what it does over time.
Say you invest ₹5 lakh once and leave it for 15 years. Assume the fund's investments earn 12% a year before fees (an assumption for illustration, not a promise).
| Expense ratio | Return after fees | Value after 15 years |
|---|---|---|
| 0.5% | 11.5% a year | about ₹25.59 lakh |
| 1.5% | 10.5% a year | about ₹22.36 lakh |
Fintelligent
That 1% difference costs you about ₹3.2 lakh. It's like a slow leak in a water tank, a bit like inflation quietly eating your money: you don't notice a drop, but come back in 15 years and a lot is missing.
Should you just pick the cheapest fund?
Not blindly. A low expense ratio is a big plus, but it's one factor:
- For index funds and ETFs, where funds track the same index, cost matters a lot. Two Nifty 50 index funds hold the same shares, so the cheaper one (with low tracking error) usually wins.
- For actively managed funds, compare the expense ratio along with the fund's long-term performance against its benchmark, its risk level, and whether it fits your goal.
- Compare like with like. A small-cap equity fund and a liquid fund will naturally have very different fees.
Quick checklist before you invest
- Ignore whether the NAV is ₹12 or ₹1,200. It doesn't tell you if the fund is good or cheap.
- Check the expense ratio on the fund page or AMFI's TER list, and prefer the direct plan if you're comfortable investing on your own.
- Get your money in before 3 pm if you want that day's NAV.
- Look at long-term returns after fees, compared with the fund's benchmark.
- If you're starting with a monthly amount, read what a SIP is first.
The bottom line
NAV is just the price tag on one unit. It changes daily, and a low one doesn't make a fund cheap. The expense ratio is the fee you quietly pay every day, and it does eat into your returns, especially over long periods. When choosing between similar funds, look past the NAV and check the expense ratio.
Related reads
- What is a SIP?
- What is ELSS?
- What is inflation?
- What is an emergency fund?
- PPF vs FD
- Old vs new tax regime
- EPF vs PPF vs NPS
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Sources (checked 17 October 2026): SEBI, SEBI (Mutual Funds) Regulations, 2026 (definitions of NAV and total expense ratio; Regulation 66 sets the base expense ratio limits, effective 1 April 2026); fund-house notices quoting the Regulation 66 limits, e.g. Tata Mutual Fund addendum, March 2026 and Aditya Birla Sun Life MF addendum, 26 March 2026 (equity 2.10% to 0.95% slabs, other schemes 1.85% to 0.70%, index funds and ETFs 0.90%; brokerage, transaction cost and statutory levies over and above the BER); PPFAS Mutual Fund BER notice, March 2026 (BER components; brokerage capped at 0.06% of cash-market and 0.02% of derivatives trade value); AMFI, TER of MF Schemes (TER components; direct plans have lower expense ratio with no commission); AMFI, Net Asset Value knowledge centre (NAV declared daily after market close; units allotted at prospective NAV; cut-off rules); SEBI, circular on time limit for NAV disclosure, 29 March 2023 and SEBI investor FAQ on mutual funds, September 2024 (NAV by 11 pm on each business day for most schemes; 10 am next day for fund of funds and mainly overseas-investing schemes). Example returns are assumptions for illustration only.
